China economy holds ground amid curbs

Beijing - China’s economy held ground last month following new measures to cool property markets in almost two dozen big cities.

Industrial production rose 6.1% from a year earlier in October, compared with median estimate of 6.2% in a Bloomberg survey and 6.1% in September Retail sales growth slowed to 10%, missing estimates for 10.7% Fixed-asset investment rose 8.3% in first ten months of the year

Any sign the world’s second-largest economy is losing steam may add to uncertainty in the global economy, which already faces the prospect that president-elect Donald Trump will impose punitive tariffs on Chinese imports. But for now, it’s all about domestic drivers, with efforts to rein in property prices tapping the brakes on China’s consumer.

"It’s probably consistent with policy remaining supportive of growth but no further ramping up or ramping down," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney.

"The moderation in retail sales growth is a bit of a disappointment given a desire to continue rebalancing the economy toward greater consumer spending but then again what other country in the world has 10% retail sales growth?"

China’s shoppers’ ongoing spending power was on display on November 11, when Alibaba’s Singles’ Day posted record sales of 120.7 billion yuan, easily topping last year’s total of 91.2 billion yuan.

"We need to see another month of data, but it could be the consumer participation in growth is declining," said Andrew Collier, an independent analyst in Hong Kong and former president of Bank of China International USA. "It’s harder for the government to control retail sales than FAI or industrial production, which is heavily state-driven."

Property markets

Even amid curbs in major cities, property development investment rose 6.6% from a year earlier in the first ten months, compared to 5.8% in the first nine. While cooling prices and fewer transactions will hurt services, construction fueled by investment remains key to driving output. Growth of private investment stabilised to 2.9% in the first 10 months of 2016 from a year earlier.

"Growth momentum is stabilising," said Zhao Yang, Nomura’s chief China economist. "But looking ahead, headwinds remain in the economy, as property markets in tier-1 cities have started to cool down. The cooling property sales in tier-1 cities will transmit to lower-tier cities and eventually drag property investment growth."

Credit and money supply data released Friday showed a moderation of total credit and new loans, while the money supply increased slightly. Aggregate financing decreased to 896.3 billion yuan in October, versus 1.72 trillion yuan the prior month.

"Today’s data suggest that the recent recovery in economic activity continued," said Julian Evans-Pritchard, China economist at Capital Economics in Singapore.

"However, with credit growth now slowing and the property market beginning to cool the drivers of the recent recovery look set to fizzle out early next year."

Fiscal spending

Separately, the Finance Ministry said on Monday that fiscal spending slumped 12.5% from a year earlier. That’s because of an unfavorable comparison to the prior October, which included a surge of spending on urbanisation and transportation infrastructure to stabilize the economy, officials said in a statement.

China’s expansion remains resilient, and economists are raising 2016 and 2017 growth forecasts. The Bloomberg Intelligence monthly China growth tracker slipped to 6.95% for October, down slightly from 7.11% in September.

"Another month of solid growth data is good news for China, and should open space for the government to continue rotating policy toward tamping down rapid credit growth and an upward spiral in house prices," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report.

"This time though, the surprise win of Donald Trump in the US presidential election and the challenging outlook for China’s own property sector mean the period in the comfort zone of may be short lived."

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